Using Mathematica to Correct Flaws in Textbook Models for Derivatives Trading

"Derivative securities are capable of exhibiting forms of mathematical pathology that confound intuition and play havoc with even state-of-the-art algorithms. These peculiarities are readily exposed by the symbolic processing capabilities of Mathematica."

The conventional wisdom isn't so wise when it comes to derivatives
trading, according to Dr. William Shaw of Nomura International PLC,
the wholly owned European subsidiary of The Nomura Securities Co.,
Ltd. of Japan, one of the world's largest investment
banks. Using Mathematica, the same sophisticated technical
computing system used by scientists and engineers worldwide to perform
complex calculations, Shaw has discovered that many of the
standard textbook models for derivative securities are seriously
flawed.

"Derivative securities are capable of exhibiting forms of
mathematical pathology that confound intuition and play havoc with even
state-of-the-art algorithms," says Shaw. "These peculiarities are
readily exposed by the symbolic processing capabilities of
Mathematica."

Dr. William Shaw is the head of Financial
Instrument Modelling in the Quantitative Analysis Group of Nomura
International PLC and author of Modelling Financial Derivatives
with Mathematica.